Retirement Income: What’s Your Number?

Income from Your Nest Egg Stands between You and Living on Social Security Income

You can miss a lot of important details if you insist on bottom line answers to everything in life. But with that risk in mind, it’s fair to say that consistent, inflation adjusted, lifelong income is the goal of retirement planning.

Although retirement planning is a holistic endeavor, your main concern is likely maintaining your present lifestyle without having to earn any more income. That’s the place to start. Logically then, the first task is to make a best guess at the income number you want to spend each year in order to calculate the kinds of returns you’ll need. If you have a great deal of wealth and few material needs, your requirements will be different from those who will plan to live an extravagant lifestyle for the next few decades. No matter which road you choose, it all starts with this number. The next constraint will be to make sure that this number is sustainable given the market volatility and the kind of wealth you've already acquired.

Retirement Spending Plan is the Place to Start

Surprisingly, few people have a written budget, although it’s easy to get one if you use one of the many inexpensive software packages available on the market. So while it’s likely that you don’t have your finances all together on a hard drive, you should consider how much time and money you’d save if you did. Tax preparation takes a few clicks of a mouse. You won’t wonder “where did all that money go?” And if anyone else has to help you with finances later on, when you may find yourself sick or disabled, the process will be much easier for your spouse or your children.

"Best Guess"  Retirement Income for Initial Planning

The next best thing to a written spending plan is to simply base retirement needs on current take home pay. Our objective is to see what’s needed in order to replace that. Before we accept that as a final number, we look at what payroll deductions are presently being made that may need to be replaced once you quit working. The most common issue is health insurance, but some people have things like Christmas clubs, which allow them to have lump sums at the end of the year. On the other hand, the payroll deductions that won’t be necessary anymore are those having to do with retirement savings.